Worries Darken Airline Gains: Revenue Measure, Int'l Results Fail to Meet Estimates

Feb. 23 -- Airlines continued to enjoy full planes and higher average fares in January, but there were worrisome signs amid the upbeat numbers.

Unit revenue, a measure of how much the biggest carriers took in for each seat mile they flew, rose 9.9 percent over last January, according to the monthly report from the Air Transport Association.

The gain fell short of some analyst estimates. Jamie Baker of J.P. Morgan Chase said in a note to investors Wednesday that he was expecting a gain of 11 percent or more.

On domestic trips, airline revenue rose nearly 13 percent. The largest carriers cut capacity nearly 4 percent from January 2005, giving them more pricing power on remaining seats.

Weaker overseas

But international revenue grew only 5.5 percent, well below Mr. Baker's estimate of nearly 10 percent.

That's a big concern for traditional carriers that have been scrambling to add international capacity, aiming to put more planes on routes where they don't face competition from discount airlines.

Weak results in the Pacific are to blame for the slow revenue growth, Mr. Baker said, which primarily affected United Airlines Inc. and Northwest Airlines Inc., the U.S. leaders to Japan and elsewhere in Asia.

Fort Worth-based American Airlines Inc., among others, has cut domestic flying to devote more planes to international routes.

Analyst Michael Linenberg of Merrill Lynch noted in an investor update Wednesday that year-over-year revenue comparisons are going to be very difficult as the year progresses.

The news isn't much cheerier for the low-cost carriers, which, like their larger counterparts, are suffering under high jet fuel prices.

"Revenue has to improve to cover the market jet fuel costs," said Laura Wright, chief financial officer for Dallas-based Southwest Airlines Co. at the J.P. Morgan transportation conference Wednesday.

Fuel problems

Southwest remains mostly protected from high fuel prices because it pre-purchased fuel at lower prices. However, those protections are fading each year and Southwest needs to raise fares to make up the difference.

Fuel costs have hurt JetBlue Airways Corp, which recorded its first quarterly loss in the fourth quarter. Chief executive David Neeleman said he will focus on boosting ticket prices $5 to $10 each to help turn the carrier's fortunes around.

JetBlue's plans

In answering a question about when JetBlue will enter large hub airports such as Dallas/Fort Worth International Airport, Mr. Neeleman said, "It doesn't make a lot of sense to go into those markets when we have so many other opportunities."

JetBlue will pick its routes "where we can make the most money." JetBlue recently added service to Austin from Boston and New York.

Airline shares responded to lower crude oil prices, which dropped $1.73 to $61.01 per barrel for April delivery on futures markets. Shares of American parent AMR Corp. rose $1.28 to $25.83 and Southwest shares rose 14 cents to $16.83.

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